Cash-out refinances

With Southern California being one of the countries hot spots for foreclosures, REOs and short sales, property investors are finding that having cash to buy properties without a loan can work in their favor.

The ability to buy a property all cash may create opportunities for buyers due to the following:

• Cash offers allow for a quicker escrow period which may help truly distressed homeowners get out of their bad financial situation faster

• Cash deals allow for buyers to purchase a property which may be in such disrepair that a bank won’t lend on it

• With no loan contingency, sellers may be more willing to accept a lower offer price

• All cash deals tend to be a more smooth transaction and may get priority over other types of offers

As a result of these benefits, property investors have been adopting the following strategy for acquiring properties: buy the property all cash in order to get the lowest possible price, immediately ‘flip’ the property -OR- do a cash-0ut refinance to recoup their cash investment, move on to the next purchase.

Unfortunately for investors, recent guideline changes by Fannie Mae, Freddie Mac and the FHA have curbed this type of activity.

If your plan is to buy an investment property (or primary residence) all cash, then do a cash-out refinance to replenish some of the monies used for the purchase, you will have to wait at least 6 months before completing the refinance.

If you have questions, please contact me at TrustYourLender@gmail.com

Flip transactions are hard to handle

There is all kinds of confusion in the real-estate market concerning “flip transactions”.

Generally speaking a “flip” is a transaction where a private investor or property speculator has purchased a property at a discounted rate.  The discount may have come from the fact the property was distressed, damaged, or simply under-valued by the institution or Realtor who sold it.  The investor will generally do some structural and/or cosmetic repairs and then attempt to resell the property in order to make a profit.

Unfortunately, a slew of new and existing guidelines from Fannie Mae and the FHA, expanded underwriting criteria which varies from bank to bank, and additional risk over-lays used by loan brokers are causing for a confusing set of rules.  Investors who want to “flip” properties, and those consumers who want buy them, can become easily confused about what type of financing is available on these transactions.

Consumers, Realtors, and even some lenders are confused and angered about the specifics on how to underwrite a loan on a property which has been flipped.

Some banks follow the FHA guidelines to the letter and only scrutinize properties which have been flipped within the last 90 days.  Other lenders are expanding this extra level of scrutiny and review to any property where the property has been sold, OR title to the property has been transferred in the last 12 months.

Here is the bottom line- if you are trying to buy, sell, or refinance a property which has been previously sold in the last 12 month, you are going to run into delays, additional underwriting requirements, and maybe a loan denial.

If attempting to get a loan on a flipped property, here are a few of the problems that may be encountered during the transaction:

- Lender simply refusing to do the deal

-Lender requiring 2 appraisals – one of which may have to be paid for by the seller

-Additional down payment requirements

-Lender requiring proof of upgrades, repairs, or money spent by the seller to increase the value of the property

Here are a few things Realtors and clients can do to help clear up the confusion early and help to avoid potential delays on flip transactions:

-Inform your lender immediately if the offer you are writing is on a house which has been sold in the last year

-Try at all costs to avoid writing a purchase contract within 90 days of the most recent title transfer on a property

-Get a copy of the preliminary title report to your lender as soon as possible

-Require the listing agent to be at the appraisal on any flipped properties in order to answer questions about upgrades

-Be mentally prepared for delays OR request a longer escrow period

It is important to keep in mind that guidelines change frequently.  As the number of flip transactions increase in your area, be sure you are working with a well-informed and trusted lender.

As always, if you have questions, don’t hesitate to contact me at TrustYourLender@gmail.com

Unemployment is good for mortgage rates

Today’s unemployment numbers showed another uptick in initial claims for unemployment benefits.

Approximately 410,000 new jobless claims were filed for the week ending February 12th.  Those number rose by roughly 25,000 new claims  from the week prior.  This is slightly more than economists had forecasted and continues an alarming trend of new claims over 400,000.  The 4-week moving average which is used to reduce volatility, rose to 417,750.

Despite the Government’s best efforts, the TARP program, and some targeted tax-cuts, unemployment continues to stay well above acceptable numbers and is roughly 9.2% nation wide (with California still holding above 10%).

The silver lining is that when unemployment numbers rise, a standard correlation is that interest rates drop.  Today we saw a drop in mortgage rates by roughly 0.125%.  This continues a 7 day trend of decreasing rates.  If you have a loan in process, I would lock in your rate today or tomorrow.

As always, if you have a questions, please contact me at TrustYourLender@gmail.com

Value in the ‘Ugliest Home in America’?

Today Money.com (hosted by CNN) has a great article on the ‘Ugliest Home in America‘.  The full article can be found here.

The funny thing about these Ugly homes is that they are all off the market.

Beauty is in the eye of the beholder, and that has never been more true with properties than it is right now.

Where you or I may see a rotting shack, an investor may see an opportunity to buy cheap, do some work on the property, and sell high.

“Flipped” properties make up nearly 15% of sold properties in certain markets across Southern California.  With distressed sales, REOs, foreclosed properties and other ugly properties being a large segment of the market, maybe it’s time for buyers to look past these ugly exteriors and look for the intrinsic value offer by these type of sales.

Recently financed in Silvelake

Recently I helped a client close escrow on a house here in Silverlake California.

After working with the client for a year, exploring several financing options, and running scenarios on several different price points, the client settled on the purchase of a single family residence with the help of FHA financing.

FHA financing allowed the client to put just 3.5% down, keep their other liquid money in investment accounts, and take advantage of the recovering stock market.

The unique aspect of this property was that there was extensive renovations and added square footage built on the premises without the benefits of proper permits.

Many agents and lenders may have deemed this property ineligible for FHA financing and not even attempted getting the deal into escrow.  However, having a lender with a sound understanding of FHA guidelines, a seasoned group of appraisers in our lender’s queue and cooperative agents made this deal possible.

An FHA certified appraisers generally will not consider un-permitted square footage while determining the final value for the property.  However, if the unpermitted work has been done in a safe and “workman” like manner, and the unpermitted work does not involve a garage conversion, the lender will generally allow FHA financing.

As always, if you have questions, please contact me at TrustYourLender@gmail.com